The narrowing window for energy transformation
For the past 15 years, PwC experts have annually analysed the global energy market and current energy trends, reviewed the business models of leading energy companies and prepared an industry development forecast. Between September and October 2018, we received responses from 118 power and utility executives from over 100 companies and 56 different countries in Europe, the Americas, the Asia-Pacific region, the Middle East and Africa. From our survey, we identified five issues that are the key building blocks for power and utility companies.
The transformation of global energy is gathering pace, driven by the twin forces of changing customer expectations and rapid technological evolution. Traditional utility companies are aware that there is a narrow window of opportunity – about five years – to build and acquire the strategies and capabilities needed to stay ahead.
We have canvassed industry executives for their views on how these forces will affect energy markets and highlighted the results across four focus areas, which are:
1. Keeping pace with change
2. Business model transformation
3. Customer experience
4. Collaboration and innovation.
The convergent effects of technological advances, policy measures, the growth of distributed generation, new forms of competition and changes in customer behaviour are transforming power markets around the world. While the pace of these changes varies from market to market, it is clearly accelerating at a speed beyond what leaders thought possible just a few years ago. An industry accustomed to long-term and large-scale asset investment timescales now has to adjust to much shorter technology and project cycles.
No component of the value chain–from upstream generation through grid and network operations, and up to beyond the meter–will be unaffected.
As the pace of technological evolution quickens, incumbent utilities need to transform their business models. In recent years, they have moved into a world in which the adoption of technology is much more rapid and disruptive, a world in which business models have to change quickly to reflect the new dynamics of the energy market. In some contexts, completely new models will be the order of the day. In others, the traditional regulated and integrated business model will need to change but not disappear.
Evolved models will coexist with traditional archetypes. The success of changing a business model will depend on whether utility companies get the focus right. Farsighted companies have the opportunity to transform how countries, economies, producers and consumers think about energy, its use and its value. New hardware, software and system tools are emerging that will fundamentally transform the role of utilities, the leveraging of technology, the management of assets and devices of networks and premises, and customer participation.
Strongest future competitive threat
New developments, such as smart grids, microgrids, local generation and local storage, all create further opportunities to engage with customers. Advanced technology is enabling the development of new energy platforms in areas such as the integration of distributed energy resources (DER), electric mobility, the Internet of Things (IoT) and energy transactions. New technology players, from the worlds of data and software development, are taking up key positions and, in some cases, disintermediating existing customer relationships.
Customers who embrace distributed generation and other technologies want to take more control of how their energy is produced and supplied.
In this era of rapid technological change and energy market transformation, power utility companies cannot ignore the imperative to innovate. Many observers expect more innovation to occur in the utilities sector within the next 20 years than has occurred since the time of Thomas Edison. Consequently, companies need to think very differently about how to leverage innovation as a market enabler and as a key part of their wider enterprise strategy.
However, the innovation mind-set is shifting, and many companies are looking to find ways to embed a culture of innovation into their core thinking. Ultimately, innovation will become a fundamental ingredient of a company’s go-to-market strategy. It will be a means through which they defend their positions, take market shares from other competitors and increase opportunities for the commercialisation of technologies and market solutions.
Partner, Power&Utilities Leader, PwC Russia
Tel: +7 (495) 967 6318
Partner, Telecom, Utilities, Communication & Entertainment (TUCE) Leader, PwC Russia
Tel: +7 (495) 967 6499
Director, Strategy & Operations, Power&Utilities sector, PwC Russia
Tel: +7 (495) 223 5044
Director, Consulting Services, PwC Russia
Tel: +7 (495) 223 5085